Canara, OBC, HSBC float insurance JV

Europe's largest banking group, HSBC, is entering India's fast expanding life insurance market, jointly with public sector banks, Canara Bank and Oriental Bank of Commerce (OBC).

Canara Bank will hold 51% stake in the venture, OBC 23% and HSBC 26%, the maximum allowed foreign direct investment in insurance.

HSBC will pay a premium of Rs 125 crore for its stake, which would be used to meet initial administrative and other operational expenditure. The company will have a paid-up capital of Rs 200 crore contributed by the three partners in accordance with the shareholding.

The two Indian banks will make available their combined network of 3,600 branches and customer base of 40 million, said K N Prithviraj, chairman and managing director, OBC.

"HSBC will provide a range of management services including executives for senior roles in the proposed life insurance joint venture," M B N Rao, chairman and managing director, Canara Bank, said.

The joint venture partners will soon approach the Insurance Regulatory and Development Authority (IRDA) for a licence. The new insurance company is expected to commence business this calendar year.

HSBC's investment in the venture will be made through its unit HSBC Insurance Holdings.

"If the FDI limit is raised by the government to 49%, Canara Bank and OBC will bring down their stakes, but the two PSU banks would together continue to hold majority stake in the company," Rao said.

Finance Minister P Chidambaram, who was present during the signing ceremony, said the new insurance company will help increase the insurance penetration rate in the country. The peneration was at 2.5% in 2005.